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Whole Foods Scores Low on 3 Parameters: Take Caution

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A healthy diet is the key to good health. With widespread awareness about the importance of nutritious foods that one should eat regularly, consumers are now ready to shell out extra money. How about applying the same principle for a healthy portfolio? Exiting the underperforming stock at the right time helps maximize your portfolio's return. Hence, we have tried to assess Whole Foods Market, Inc.WFM on three basic parameters. Let's delve deeper.

From Stock Price Performance Perspective

Shares of Whole Foods, the natural and organic foods supermarket chain operator, have been plunging, and touched a 52-week low of $30.18 on Aug 24. Year to date, this Zacks Rank #4 (Sell) stock has nosedived approximately 35%. Moreover, shares have plummeted roughly 21% following the company's last earnings release on Jul 29. It has been over six months since the stock hit a 52-week high. It had last reached the pinnacle on Feb 19, 2015.

From Last Quarter's Performance Perspective

Whole Foods succumbed to a negative earnings surprise in the third quarter of fiscal 2015, following four straight quarters of earnings beat. Consequently, management provided a subdued outlook. The company posted earnings of 43 cents a share that missed the Zacks Consensus Estimate by a couple of cents. However, the figure rose 4.9% year over year. Revenues of $3,632 million also fell short of the Zacks Consensus Estimate of $3,697 million, marking the 11th consecutive quarter of sales miss.

Analysts believe that intense competition and the allegation of overcharging some prepackaged foods in the New York City's stores weighed upon the company's results. Companies such as The Kroger Co. KR , Sprouts Farmers Market, Inc. SFM and Wal-Mart Stores Inc. WMT are gradually entering and expanding their presence in the Organic & Natural food business, thereby posing a competitive threat to Whole Foods. However, the latter has been revamping its pricing strategy, with focus on value offerings, along with the introduction of a new "uniquely-branded store concept", "365 by Whole Foods Market" to counter the same.

From Estimate Revisions Perspective

Following Whole Foods' discouraging performance and dull outlook, the Zacks Consensus Estimate witnessed a downtrend as analysts lowered their estimates in order to better align with management's guidance. Management anticipates sales growth of approximately 7% and earnings in the band of 34-35 cents per share in the fourth quarter.

Analysts polled by Zacks are now less constructive on the stock's future performance. Over the past 60 days, the Zacks Consensus Estimate of $1.67 and $1.79 per share for fiscal 2015 and fiscal 2016 has declined 2.9% and 6.3%, respectively. Moreover, the Zacks Consensus Estimate for the fourth quarter has plummeted 10.3% to 35 cents over the same time frame.

With Whole Foods' share price tumbling and estimates witnessing downward revisions, it would not be prudent to keep the stock in your portfolio, at least for the time being.

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WAL-MART STORES (WMT): Free Stock Analysis Report

KROGER CO (KR): Free Stock Analysis Report

SPROUTS FMR MKT (SFM): Free Stock Analysis Report

WHOLE FOODS MKT (WFM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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